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Your 2nd assumption is correct. There is simply a bored hole in the aluminum block. The heater slides into the hole with some thermal grease around it. It is secured from sliding out by a little metal clip that hooks onto the block. I assume they went to this style when they went with aluminum blocks. I'm really glad I didn't have to mess around and knock out a freeze plug. Thats what I thought I was going to have to do.
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